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By G. Steven Bray
Former Federal Reserve Chair Alan Greenspan has a warning. Interest rates are much too low, and he thinks they’re likely to move higher and quickly.
In a CNBC interview, Greenspan said he thinks the bond market is experiencing a bubble with long-term rates abnormally low. The low rates are the result of Fed taking short-term rates to near zero during the financial crisis and keeping them there for years.
The Fed has hiked short-term rates 4 times since then, but long-term rates remain near record lows. Analysts cite many reasons for this including political and economic uncertainty and, most importantly, persistently low inflation.
Greenspan says he doesn’t know when rates will start to rise, but he thinks it will be soon, and once they start rising, he thinks they will rise rapidly, which could put the rest of the economy at risk.
2 Responses to “Greenspan says rates going to climb quickly”
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Steve,
How does Hurricane Harvey affect all this? The uncertainty of the economy is greater than the every. Can rate increases be justified in this disaster?
What happens to the mortagage industry when all these homes are destroyed? If your home is destroyed and you get a large settlement. You pay off the mortgage and then what are possibilities?
It seems to me the mortgage industry would explode.
Gary Y.
Hard to say, Gary. Historically, natural disasters haven’t resulted in significant or lasting changes in economic data. Basically, the spending that occurs as a result of the disaster was likely to occur anyway, just on different items. For example, 50k cars may have to be replaced. They would have been replaced anyway at some point, so the disaster caused them to be replaced sooner. The money that was spent on the cars may have been spent anyway, just on something else. (Yes, that’s a simplistic view because it ignores credit and other effects.)
The more interesting effect may be on the housing markets. The disaster will at least temporarily reduce the housing stock in Houston. If folks leave the city, it may increase housing demand in other TX cities. (This effect was experienced in Houston after Katrina.)